Shoppers clung tightly to their wallets in March, judging from the same-store retail data rolling in today. Recessionary pressure seems to have hit consumers full force. While you'd think that retailers' impressively dismal performance would send their stocks plummeting, investors seem largely unconcerned. Many retailers are actually trading higher today.
Retailers have languished amid the past year's steadily softening economy. But even in that context, last month's results were somewhat jaw-dropping, as some of the industry's strongest players posted double-digit comp declines.
Specialty retail not so special?
The results at Gap
Compared to last year's 20% March comps jump, American Eagle Outfitters
Of course, misery loves company: Abercrombie & Fitch
While reading any further might depress you, not every retailer experienced a disgraceful month. Aeropostale's
Everybody loves bargain stores
Shoppers may shy away from shelling out too much on discretionary spending, but they do flock somewhere for their purchases. Discount retailers remain a good bet in this slow economy, exemplified by Wal-Mart's performance. The discounter didn't disappoint with a 0.7% increase in March comps (excluding fuel), and it was able to increase its first-quarter guidance to a range of $0.74 to $0.76 per share, from its previous expectation of $0.70 to $0.74.
On the other hand, Target
Take a cue from consumers: Buy, but carefully
The consumer slowdown is clearly no joke, judging by the majority of retailers' exceedingly bad month. However, I don't think investors should simply avoid the retail sector; after all, consumers aren't going to stop buying forever.
As I've said ad nauseam, I like the major discount retailers in the current climate. And even though many specialty retailers may be having a hard time right now, there are plenty of good ones out there that have fallen on temporary hard times, or are holding up pretty well despite the tough environment. In particular, American Eagle and Aeropostale sound like good stock ideas to me. Despite recent weakness, I don't think American Eagle's brand is tarnished, and Aeropostale has been bucking the trend lately. However, I still think it's prudent to steer clear of long-suffering turnaround stories like Gap and Chico's.
As hard as it is to ignore many retailers' bad news, tough times like these can create bargain opportunities for patient, selective long-term investors.
Brush up on selected coverage of January's and February's comps data: